Tag Archives: Allianz

NPS Scores Provide 3 Keys to Growth

This year has not been kind to the insurance industry. According to the 2020 Allianz Global Insurance Outlook Report, premium income is expected to shrink by 3.8% globally, mostly due to the global COVID-19 pandemic. So, it’s all hands on deck to find ways to stem the losses, and one of the highest priorities is customer retention. Winning new customers is critical to recovering from the economic shocks caused by the virus, but these new customers will only make a difference if carriers can hold on to the customers they already have. 

Happy customers generally remain customers, and one of the best measures of customer satisfaction is the Net Promoter Score (NPS). It’s a simple measure that’s calculated by subtracting the percentage of customers who would not recommend your product or service to friends from the percentage of those who would. But don’t be fooled by its simplicity. It’s a powerful metric. 

In the Harvard Business Review article that introduced NPS to the world, the authors found that, “remarkably, this one simple statistic seemed to explain the relative growth rates across the entire [airline] industry; that is, no airline has found a way to increase growth without improving its ratio of promoters to detractors.” Further research showed that this finding applied across most industries. The takeaway is this: If carriers increase their NPS scores, they will also accelerate growth.

Of course, improving customer satisfaction is no small feat. But with the right technology and the right partners, insurers will see their NPS scores rise. Here are a few of the technologies and strategies we’ve used at my company, HONK Technologies, to achieve a high NPS scores for our carrier clients.

Automation:

Customers appreciate it when they receive fast service, and nothing speeds service like automation. The insurance industry has made a lot of progress on this front. According to the 2019 J.D. Power U.S. Auto Claims Satisfaction Study, customer satisfaction with the auto insurance claims process hit a record, as the amount of time that passed between filing a claim and the return of a vehicle was 12.9 days, half a day less than it took the year before. 

But there’s still room for improvement, particularly on the claims intake side. For example, instead of sending an adjuster to inspect the vehicle or other property and make a report, the carrier can have the customer send photographs of the damage electronically, perhaps using the carrier’s mobile app. The claim can then be audited by a remote adjuster or even artificial intelligence.

See also: 10 Tips For Using Net Promoter Score

It’s a good idea to undertake a full audit of the claims process and then identify where emerging technologies can automate tasks. It’s not a simple project, but if it’s conducted at regular intervals and management acts on recommendations, the long-term benefits to customer satisfaction and cost efficiency can be substantial.

Analytics, AI and machine learning:

It’s not always obvious what changes could improve customer satisfaction and increase NPS scores, especially because many of the obvious measures, such as speeding up claims processing, are already underway at many carriers. Carriers will need insights into customer behavior that aren’t evident even to an experienced insurance professional. Advanced analytics, artificial intelligence (AI) and machine learning (ML) can help provide these insights. 

But these technologies require a lot of data, so insurers should collect as much information about the customer experience as is ethical and legal. No data point is too small to collect. Everything from demographic information and customers’ interactions with your website, to recordings of customer service calls and interactions with third-party service providers could be important. Just as the HBR author, Frederick Reichheld, was surprised to find that the simple NPS score correlated with business growth, you may be surprised to discover that something as mundane as the layout of the claims intake form could make an enormous difference to customer satisfaction.

The more information you gather, the more likely you are to uncover unexpected insights about your customers that can help you increase their satisfaction.

Partner evaluation:

These days, ecosystem services are just as important as claims for creating happy customers. According to a report from Bain, additional services beyond traditional insurance — such as assistance with buying or selling a vehicle, home security advice, healthy living consultations or roadside assistance — can make a big difference in customer loyalty. Bain found that carriers that offered three or more ecosystem services had an average NPS score that was more than 3.5 times higher than those that offered none.

After all, customers are likely to interact far more often with one of these services than they are to file a claim (unless they are very unlucky, indeed). These services are not nice-to-haves; they’re must-haves, and, if they’re poor quality, that will reflect on your brand. So as you work with ecosystem partners, require them to provide data on each customer interaction, and regularly evaluate their performance. Set up key performance indicators (KPIs) and, if they’re not being met, find a new partner. Your NPS score and future growth are at stake, after all.

See also: COVID, and How to Pivot to Innovation

It’s a difficult environment right now for insurance, but as anyone who has been in the business long enough knows, even the worst cycles eventually come to an end. Insurers that lay the groundwork now will be well-positioned to grow once the public health crisis finally passes and the economy recovers.

5 Liability Loss Mega Trends

The range of exposures facing corporation, as well as subsequent loss and claims scenarios, have increased significantly in recent years. There are rising court costs, disruptive recalls, political risks and environmental problems – all in the face of a challenging global pandemic. Allianz Global Corporate & Specialty (AGCS) experts highlight five loss mega trends in a new report that may affect risk managers and their broker partners, reflecting the state of the liability insurance market.

1. Drivers of social inflation, such as litigation funding and class actions challenging businesses and moving into new jurisdictions

“Social inflation” describes rising insurance losses due to the growing emergence of litigation funders, higher jury awards, more liberal workers’ compensation claims, legislated compensation increases and new tort and negligence concepts – a phenomenon that is especially prevalent in the U.S. but that is now growing globally. Consumer-facing industries, such as retail, healthcare, automotive, insurance, pharmaceutical and financial services, are often the most affected by this trend, but many other industries are increasingly susceptible.

In the U.S. in 2019, there were 74 settlements totaling $2 billion and four mega settlements greater than $100 million, representing 45% of all settlement dollars (but only 5% of all cases). Median case amounts increased from around $1 million to $1.5 million per year between 2001 and 2014, to between $2 million and $2.5 million per year from 2015 to 2017 and finally up to almost $4 million per year for 2018 and 2019.

The increasing sophistication of the plaintiffs’ bar, including expanded use of jury consultants and psychologists specializing in group dynamics, has influenced the size of the settlements that juries are willing to award.

In the wake of the coronavirus pandemic, court closures and the uncertainty of reopening is affecting the legal environment. With attorneys working and conducting depositions remotely, the legal process has become more complex and slower. Plaintiffs realize that, even if their case makes it to court, it could be two years or more before it’s tried before a jury. Others worry that jury trials won’t be feasible as long as social distancing rules apply.

2. Rising automotive repair and recall costs drive high liability claims, as supply chain complexity deepens

The U.S. National Highway Traffic Safety Administration (NHTSA) administered close to 1,000 safety recalls affecting well over 50 million vehicles in 2019. Although this represents a slight decline in the number of recalls year-on-year, it still represents an average of more than two recalls every day in 2019. In addition, around 20 million more vehicles were affected in 2019.

2019 also saw high numbers of recalls across Europe. A spike of 75% meant there were 158 automotive recalls in the first quarter of 2019 – the highest total in the history of Safety Gate, the E.U.’s Rapid Alert System for dangerous non-food products. In total, the volume of motor vehicle recall alerts across the E.U. reached 475 for the year – the highest figure for a single year in the 2010s and a significant 11% increase over 2018 (428).

Of the 966 recalls in the U.S. in 2019, 907 were initiated by the automaker, and 57 were NHTSA- recommended recalls – attesting to a recent continued safety-focus trend on the part of original equipment manufacturers (OEMs). This trend of voluntary or first-party recalls is a major driver in the increasing costs of claims from auto recall. Analysis of almost 400 product recall claims over five years shows that the automotive sector is the most affected by recalls, accounting for over 70% of the value of all losses.

See also: COVID-19 Highlights Gaps, Opportunities

Many suppliers in the auto sector are specialized – diversification into other industries is rare. Top suppliers only serve the automotive industry, meaning they serve multiple automobile manufacturers. Other suppliers make parts that wind up in automobiles but do not sell directly to the manufacturer and work with non-automotive manufacturers, as well. Further down the chain are providers of raw materials to all tiers in the supply chain, as well as to OEMs. This supply chain complexity makes automotive manufacturing especially volatile to change or disruption.

In many cases, components can be produced by one of a handful of suppliers that service the entire industry, which can make the industry prone to accumulation risks – as a result, automotive product recalls have become larger and more costly. 

The increasing complexity of technology is another significant driver of industry losses, due to factors such as increased time and labor rates to make repairs, more specialized training for mechanics and other repairers and the increasing prices of parts. Routine advances that were cutting-edge only a few years ago are now commonplace – like backup cameras, curb sensors, GPS navigation and anti-lock brakes. All of these increase driver convenience and safety – but also costs and claims. For example, vehicle repairs cost around 60% more in 2017 than they did in 2000.

3. The pandemic challenges manufacturers to avoid costly food safety risk and recalls

The number of food recalls has risen over recent years, with the exception of a decline in incidents through the coronavirus outbreak. Such recalls can be costly. The resulting disruption in operations while managing the recall, the direct cost of recalling stock and the indirect costs caused by the knock-on effects, such as reputational damage, can result in significant long-term financial losses for a company from loss of sales.

The average cost of a recall to a food company is around $10 million in direct costs, including brand damage, lost sales, response team set-up, press activities and other fixed costs, according to a joint U.S.-based study by Food Marketing Institute and the Grocery Manufacturers Association (GMA). Analysis of product recall insurance claims in the food and beverage sector by AGCS shows a similar experience, with the cost of the average large claim around $9.5 million (€8 million).

Product recalls are increasing in both the U.S. and the U.K. – 58% of companies have been hit by food recalls, according to one report – but also elsewhere in the world due to factors like just-in-time global manufacturing, in which recalls can rapidly go global; fewer suppliers and complex supply chains, which increases food safety risks if one supplier has a contamination issue; improved technology, which allows for better traceability and pathogen detection; and stricter regulatory enforcement globally. 

The ability of the regulatory agencies and public health officials to detect problems has been reduced during the pandemic. Post-pandemic, there is likely to be a return to the normal detection of issues – especially those related to food-borne illness.

With very dramatic increases in hygiene standards – not only within manufacturing but in every aspect of society – cross-contamination risks, which are a major cause of food and beverage recalls, may decrease. New operations, closed factories, remote work forces, weakened quality checks, decreases in regulatory visits and erratic supply chains can increase risk exposures.

4. Political risks threaten business disruption beyond physical property damage

Civil unrest such as protests and riots are challenging terrorism as the main political risk exposure for companies. Recently, events such as the French ”yellow vest” protests (insured losses around $90 million), as well as unrest in Chile (around $2 billion), Hong Kong ($77 million), Bolivia ($170 million) and Ecuador ($821 million) have highlighted the volatility of businesses to the impact of political risks and violence, causing both physical damage but also preventing many businesses from opening their doors. 

Almost 50 countries witnessed a surge in civil unrest in 2019, according to a Verisk study. Notably, in 2020, racially charged riots in the wake of the death of George Floyd have challenged authorities to control crowds and protect property. Losses to businesses in at least 40 cities in 20 U.S. states may come close to the most costly civil disorder in U.S. history (Los Angeles’ 1994 Rodney King riots, which caused $1.42 billion in damages, in 2020 dollars).

An individual business doesn’t have to be a direct victim of civil unrest or terrorism to suffer a loss. Businesses near such incidents can suffer lost revenues whether or not they incur physical damage, during the time the area is cordoned off or until the infrastructure can be repaired to allow entry of customers, vendors and suppliers. Companies can also be disrupted by a physical loss of attraction to a property in the vicinity of their premises. If there is a closure of an important landmark, hub or particular place where large numbers of people come together, a reduced number of visitors will result.

5. Indoor air quality after coronavirus and enforcement undertakings concerns environmental market

Environmental pollution incidents can have damaging consequences for a business, and not all aspects are always fully considered when a company is assessing whether it is adequately covered. Among these, two risks are paramount for 2020 and beyond: indoor air quality concerns with legionellosis and mold growth and the use of enforcement undertakings (EU) to encourage companies to participate in the clean-up and prevention of environmental accidents that they caused.

Indoor air quality is a continuing environmental concern, driven by increased mold and legionella claims. This is exacerbated by the coronavirus pandemic, which has caused an unprecedented shutdown of commercial office buildings. When certain air quality systems are dormant for a while, they are susceptible to contamination by bacteria that thrive in humid, water-rich environments.

Mold and legionella can especially affect real estate and the hospitality sector, but also hospitals, bath houses, fitness clubs and other public settings – large buildings with complex plumbing and heating, ventilation and air conditioning (HVAC) systems that allow bacteria to grow and aerosolize into small droplets that are aspirated by facility occupants.

See also: How Risk Managers Must Adapt to COVID

The coronavirus pandemic, however, has caused many commercial office buildings to sit idle, potentially leaving poorly maintained buildings with stagnant water in HVAC and plumbing systems where legionella thrive. Legionella is more likely to occur in systems that have been dormant for a prolonged time – weeks or months, at least.

Mold growth in buildings may also be an unexpected side effect of the pandemic. An HVAC system transfers heat and moisture into and out of the air to control the temperature level. In a building, this balance can easily be offset by an inconsistent or inoperable HVAC system. Mold requires three things to grow: water/moisture, proper temperature and a food source, which is typically building materials such as drywall or ceiling tiles.

Globally, environmental prosecutions are on the increase as public awareness of environmental matters grows, and therefore the standard by which businesses are judged becomes higher. Fines and remediation standards are on the increase, and therefore environmental management should be a boardroom priority. 

For more information, please visit AGCS Liability Loss Trends 2020.

Insurtechs Are Specializing

Money has been pouring into insurtechs, reaching a record of almost $2 billion in Q4 2019. Since 2018, investors have put more than $1 billion per quarter into companies seeking to shake up the industry. Not a single market segment has been untouched.

In 2020, the focus will be on innovating with insurtechs that enable incumbents. One report found that 96% of insurers said that they wanted to collaborate with insurtech firms in some way. Those surveyed favored partnerships and the software as a service (SaaS) approach to developing new solutions. There’s a rapidly growing list of insurer and insurtech partnerships.

See also: An Insurtech Reality Check  

Insurtechs are developing to solve niche problems, and most aren’t aiming to tackle every vertical or every phase of the process. We all know the saying, jack of all trades, master of none. Insurtechs are focused on being the master at very specific parts of the value chain. Allianz has partnered with Flock, an insurtech startup offering pay-per-flight drone insurance; Aviva partnered with Digital Risks in the U.K. to develop insurance for startups and small and medium-sized enterprises (SMEs); and State Farm partnered with Cambridge Mobile Telematics to deliver usage-based insurance to drivers in the U.S.

One big driver of these partnerships is the inability of one company to do everything at once. Synergies can be realized when combining complementary skills. In Germany, Generali formed a partnership with Nest to offer homeowners insurance that leverages Nest’s smart home technology. Nest’s technology detects smoke and carbon monoxide and sends alerts to customer’s phones, reducing the risk for the insurer. Nationwide’s partnership with sure.com allows it to sell renters insurance through an app; Nationwide is still handing the underwriting and policy management separately. 

More and more, incumbents are working with several insurtechs that integrate to bring change to every aspect of the industry. 

Insurtechs bring the speed, agility and technological skills that incumbents need.

As Deloitte’s 2020 Insurance Outlook pointed out, “Despite some attempts to upgrade legacy marketing and distribution systems… carriers continue to struggle to drive more effective connections with consumers accustomed to online shopping and self-service.” Trying to bring legacy systems into the current age of digitization simply isn’t working, and, if incumbents try to build in-house, they face a longer time to market and higher costs.

Partnering with an insurtech company allows incumbents to quickly bridge the innovation gap, where technology changes faster than their ability to keep up. The estimated timeframe to develop solutions in-house is around 18 months, whereas you can be up and running in as little as three months if you partner with an insurtech. Moreover, incumbents that partner can respond more quickly to changing customer demands and lessen their risk of losing market share to a competitor. 

See also: How Tech Makes Sector Safer, Smarter  

For their part, insurtechs have realized that seeking to disrupt and replace incumbents can be too costly. To run a successful insurance company, you need significant capital, which is difficult for startups to raise. The insurance industry is also regulation-heavy, making it difficult for newcomers to find a place. Startups struggle to access the complex networks that support insurers. The industry presents too many barriers to independent disruption, but partnership benefits everyone involved.

Insurers are ready to innovate and have the data and distribution networks to support large-scale rollouts. Insurtechs have the technology and the agility to come into a large organization in the midst of change, work with its legacy systems, partner with insurtechs solving other problems in the supply chain and provide immediate value in moving them into the digital world. Both sides of the equation are ready and willing to realize the benefits of working together.

How to Help Microinsurance Spread

Microinsurance is an industry that keeps building momentum. Changes in the global economy have created an emerging middle class that has been underserved by traditional insurance models — and microinsurance offers a needed solution.

For people in developing countries, who in many cases live on just a few dollars a day, traditional insurance is too costly. Constrained finances and limited awareness act as a significant deterrent for purchasing traditional, risk-mitigating insurance products. However, when loss events like those stemming from Hurricane Maria or workplace injury occur, insurance is necessary to rebuild communities and individual lives. Considering that nearly 6.5 billion residents live in emerging and developing countries like Ghana, the Philippines and Vietnam, the scale of this opportunity exceeds virtually any other single opportunity in mature insurance markets.

Much of the (re)insurance market’s recent attention has centered on global natural-catastrophe losses, which have exceeded $500 billion since 2017. Many communities around the world were dramatically affected by these losses, forcing prominent insurers to understand the best way to serve those communities.

Why Micro Makes Sense

The increased buying power within these developing communities confirms there’s an opportunity for microinsurance to grow. A World Bank study found that, from 1985 to 2017, Vietnam’s per-capita GDP jumped by nearly 10 times from $230 to $2,343. Such gains encourage significant interest and investment specifically focused on microinsurance product development.

Allianz, for example, has doubled down on its commitment to the field by joining forces with FPT Group to build insurance products for Vietnam and purchasing micro insurer BIMA for $290 million. In addition, LeapFrog raised $400 million for microinsurance product development and distribution, proof that sophisticated parties believe in the value of microinsurance products.

For new markets where skepticism toward high-premium private products exists, microinsurance offers a low-cost option to mitigate risk and grow trust with corporate insurance brands. However, when viewed in the aggregate, there remains a mismatch between high-growth areas in terms of population and income — Latin America and the Caribbean, Asia and Oceania and Africa — and insurance penetration in these areas, which currently sits at only 7%.

See also: Microinsurance: A Huge Opportunity  

The challenge for investors and the insurers they support is simple: educating communities, developing relevant products and establishing trust in these products; all of which is typically expended before the first premium dollar is collected. The challenge is exaggerated by the high-volume, low-margin nature of individual products, which, in some communities, carry average microinsurance product annual premium of $14.

While the economics of microinsurance will continue to challenge penetration and premium capture, insurers can overcome significant hurdles related to education and distribution by presenting simplified and relevant products to prospective insurance customers, and developing and executing a distribution strategy through a multidisciplinary team.

How Insurers Can Solve the Microinsurance Quandary

Insurers can position themselves for success in the microinsurance market through a couple of different approaches.

Chief among those is to streamline their services. Microinsurance is a product of its time. Technology allows all kinds of consumer services to provide hyperpersonalized care, which means insurers need to offer products that are as simple and relevant as possible.

To accomplish this goal, insurers must keep the end user in mind during all phases of product creation. Companies need to understand what customers need, how they prioritize those needs, and where their gaps in coverage lie. By identifying these factors, insurers can offer products that clearly spell out the relevant advantages to customers. This clarity can help engage customers and increase the odds that consumers will purchase the coverage.

Customers don’t want to pay for coverages they don’t need. Insurers, therefore, must seize any opportunity to create granular products that are simple and affordable. Not only does this approach provide more useful products to buyers, but it also helps insurers limit how much information they must collect during underwriting.

Additionally, insurers should build cross-functional teams internally to assist with distribution. Getting the right insurance product to the right customer at the right moment takes a coordinated team of experts. Those who distribute these products need to understand the environments in which they sell and have a stake in the profitability of the product.

See also: Microinsurance and Insurtech  

These distribution partners must also learn to describe to consumers the differences among products. It is not enough to sell: Distributors must be educators who teach customers that insurance can be as trusted as the local brands they know and rely on. To do that, the distributors and the people they serve must be supported through association with charitable and regulatory organizations.

Finally, technology must be leveraged to effectively monitor and mobilize the distribution force and insureds alike. To that end, software developers must build and test features on the basis of real customer feedback and adapt quickly to optimize the products. When the back-end team gives distributors a product that people want, distributors can sell a product that brings clear and tangible benefit to the developing world.

Microinsurance will continue to grow as the needs of the global population continue to evolve. Everyone in the insurance industry, from distributors to developers, is responsible for overseeing the growth of this new niche. Only by collaborating to offer a relevant product will insurers successfully earn their share of this new and burgeoning market.

Will Blockchain End Up Like 3DTV?

When technology is baked into a device, we rarely give it much thought. We buy a smartphone for its utility – not its operating system. Sometimes a new technology dramatically changes how everyone does things; the internet is a good example. Some plausibly great innovations, such as 3D television, just never gain traction. Which of these outcomes will blockchain have?

Recently, blockchain has emerged as a technology that will potentially transform industries in a way similar to what the Internet did a couple of decades ago. Still a nascent technology, its many uses have not yet been discovered or explored.

Most people know a little about blockchain:

    • It lets multiple parties agree on a common record of data and control who has access to it.
    • Its platform makes cryptocurrencies like bitcoin possible.
    • Movement of cryptocurrency verified by blockchain allows peer-to-peer cash transfers without involving banks.
    • Blockchain is a permanent, auditable record, so any tampering with it is obvious.

Some people think blockchain will transform security in financial services and fundamentally reshape how we deal with and trust complex transactions, though this could be a response to hype or a fear of missing out. Many other people ask why and how they should use blockchain.

On the face of it, using a shared (or distributed) ledger to process multiple transactions doesn’t seem so revolutionary. Blockchain is essentially a recordkeeping system. Perhaps its association with cryptocurrency – such as bitcoin – lends it a darker, more enigmatic edge than the software traditionally used for processing multiple transactions. One way or another, insurers face pressure to update antique systems with new ones that can compete with the demands of a digital world, and that means incorporating blockchain technology.

A distributed ledger of transactions

A blockchain can be seen as an ever-growing list of data records, or blocks, that can be easily verified because each block is linked to the previous one, forming a chain. This chain of transactions is stored on a network of computers. For a record to be added to the chain, it typically needs to be validated by a majority of the computers in the network. Importantly, no single entity runs the network or stores the data. Blockchain technology may be used in any form of asset registry, inventory and exchange. This includes transactions of finance, money, physical property and intangible assets, including health information.

Because blockchain networks consist of thousands of computers, they make any effort to add invalid records extremely difficult. Every transaction is secured using a random cryptographic hash, a digital fingerprint that prevents its being misused. Every participant has a complete history of the transactions, helping reduce the chance of transactions being corrupted. Simply put, a blockchain is a resilient, tamper-proof and decentralized store of transactions.

Complex processing and automation with smart contracts

Blockchain ecosystems enable a large number of organizations to join as peers to offer services, data or transactions that serve specific customers or complex transaction workflows transparently. These ecosystems can automatically process and settle transactions via smart contracts that encapsulate the logic for the terms and triggers that enable a transaction.

Smart contracts are created on the blockchain and are immutably recorded on the network to execute transactions based on the software-encoded logic. Transparency through workflows recorded on the blockchain facilitate auditing. Peers and partners within a blockchain ecosystem independently control their business models and the economics without the need to use intermediaries.

Self-executing smart contracts can be used to automate insurance policies, with the potential to reduce friction and fraud at claim stage. A policy could be coded to pay when the conditions are undeniably reached and decentralized data feeds verify that the event has certainly occurred. The blockchain offers enhanced transparency and measurable risk to this scenario.

Parametric insurance, which operates through smart contracts with triggers that are based on measurable events, can facilitate immediate payments while decreasing the administrative efforts and time. Effectively, the decision to pay a claim is taken out of the insurer’s hands. Other possible models are completely technology-based without the need for an actual insurance company. The decentralized blockchain model lends itself well to crowd-sourced types of insurance where premiums and claims are managed with smart contracts.

See also: Blockchain’s Future in Insurance  

Blockchain-based insurance

New insurers using blockchain are emerging and offering increased transparency and faster claims resolution. Here are some examples:

    • Peer-to-peer property and casualty insurer Lemonade uses an algorithm to pay claims when conditions in blockchain-based smart contracts are met.
    • Start-up Teambrella also leverages blockchain in a peer-to-peer concept that allows insured members to vote on claims and then settles amounts with bitcoin.
    • Dynamis provides unemployment insurance on a blockchain-based smart contract platform.
    • Travel delay insurer insurETH automatically pays claims when delays are detected and verified in a blockchain data ledger.
    • Etherisc is another new company building decentralized insurance applications on blockchain that can pay valid claims autonomously.

Traditional insurance companies, such as AXA and Generali, have also begun to invest in blockchain applications. Allianz has announced the successful pilot of a blockchain-based smart contract solution to simplify annual renewals, premium payments and claims submission and settlement.

Blockchain has the potential to improve premium, claim and policy processing among multiple parties. For example, in the last year the consultancy EY and data security firm Guardtime announced a blockchain platform to transact marine insurance. This platform pulls together the numerous transactional actions required within a highly complex global trade made up of shipping companies, brokers, insurers and other suppliers.

A consortium of insurers and reinsurers, the Blockchain Insurance Industry Initiative (B3i), has piloted distributed ledger technology to develop standards and procedures for risk transfer that are cross-market compatible. Whether or not the outcome is adopted industry-wide, it seems important for digital solutions to be created with this transparency and inclusiveness in mind.

There is clear potential for blockchain in reinsurance where large amounts of data are moved between reinsurers, brokers and clients, requiring multiple data entry and individual reconciliation. Evaluating alternative ways of conducting business is one reason for the collaboration of Gen Re with iXledger, which can explore ideas while remaining independent.

Handling of medical data and other private or sensitive information

Individuals will generate increasing amounts of personal data, actively and passively, from using phones and Internet of Things (IoT) devices, and processing digital healthcare solutions. Increasingly, consumers will want control of this scattered mass of digital data and share it with whomever they choose in exchange for services. This move aligns perfectly with the concept of a “personal data economy.” Think of information as currency and think about using blockchain to secure private data and reveal it in a secure and trusted manner to selected parties, in exchange for something.

Electronic health records are now common. Several countries use blockchain to secure patient data held digitally. This helps counter legitimate concerns about how sensitive personal data can be kept secure from theft or cyber-attack. Code representing each digital entry to the patient record is added to the blockchain, validated and time-stamped. A consortium of insurers in India is using blockchain to cut the costs of medical tests and evaluations, and to ensure the data collected is kept secure, along with other benefits including identification of potential claims fraud.

Looking to leverage the data economy, companies may employ innovative insurance propositions to engage people. Because the propositions will rely on shared data, people may be put off, fearing a loss of control over their personal information. While this fear poses a huge challenge for an industry seeking to improve its reputation for trust, blockchain technology may help insurers to reassure customers the digital data they share with them is safe.

Verification of documents

Verification of the existence and purpose documents in banks and insurance companies relies on storage, retrieval and access to data. A blockchain simplifies this process with its open ledger, cryptographic hash keys and date-stamped transactions. Actual hard copies of documents are not stored; instead, the hash represents the exact content in a form of scrambled letters and numbers. A change in a document will be exposed because it will not match the encoded one. The effect is an immutability that proves the status of the data at an exact moment and beyond doubt.

Blockchain technology is a “trustless” system because nobody has to trust anybody else for the system to function; the network of users acts together to vouch for the accuracy of the record. Examples of blockchain protecting patient records demonstrate its potential to implement other trusted and secure transactions with less bureaucracy.

There are other opportunities for insurers to move to a digitized paradigm and catalyze efficiency gains; blockchain need not be reserved for cross-industry platforms, and it’s not only useful in multiparty markets with high transaction volumes and significant levels of reconciliation; smaller-scale solutions can bring benefits, too.

Features that ensure privacy and data security

Beyond driving efficiencies, blockchain employs agreed standards for data care, which reduce the vulnerability of data that arises with the mass of sensitive data that digital connectivity creates. Other features that enhance privacy and data security include the contract process: Transactions are not directly associated with the individual, and personal information is not stored in a centralized database vulnerable to cyber-attack. Insurance companies, as well as technology companies, are accountable to their users for the security of their devices, services and software, and hackers are less likely to target enterprises with strong security.

Multiple participants and the removal of a central authority

Transparency, audit-ability and speed are standard requirements for any organization to successfully compete and transact in an increasingly complex global economy. Data is a valuable catalyst to that process and is complemented by blockchain’s ability to organize, access and transact efficiently and compliantly.

Trusted transactions require access to valuable data, and blockchain facilitates efficient access across multiple organizations. The economics for data usage will drive new business models fueled by micropayments, which will require efficiencies to scale. Business models based on data aggregation by third parties in centralized repositories with total control and limited transparency will be replaced by distributed blockchain-enabled data exchanges where data providers are peers within the ecosystem.

Decentralized peer organizations can use the blockchain for permission access, and for facilitating payments, to ensure total control of their economic models, without having a centralized authority. Data access and transactions are controlled directly by each member of the ecosystem, with complete transparency and immediate compensation.

Token economies

Ecosystems supporting peer organizations that transact or share data will require an effective mechanism for micropayments. These business models require efficiency, with less overhead than traditional account payable and account receivable workflows.

Event triggers, cryptlets that enable secure communication between blockchain, and external verification sources (oracles) will execute based on predetermined criteria, and token payments will be made simultaneously. Counterparty agreements may initially define the relationships between parties on the network, but payments are executed within the smart contract transactions.

See also: How Insurance and Blockchain Fit  

The elimination of a time delay in payments acts as a stimulant for economies; tokens earned can immediately be spent, increasing the speed at which organizations will earn and spend. Traditional delays and fees that occur throughout accounting workflows and through intermediary banks that process payments can be eliminated.

Cross-border processing

Currently, global payments involving foreign exchange introduce complexities in addition to time delays. Economic indicators and political events dramatically affect the exchange rates and profitability of transactions. Cross-border payments require access to the required currencies by intermediary banks, which can cause additional delays beyond the internal accounting workflows.

With blockchain technology, using a token-enabled economic layer simplifies the payments to support micropayment efficiencies. Participants on the blockchain network will be able to efficiently use the preferred fiat currencies to acquire or sell tokens without using intermediaries, banks or currencies.

Merging blockchain and data

Today, there are more connected IoT devices than there are people on the planet, and the data generated is growing at an exponential rate. Various sources have predicted that the number of connected devices will grow to more than 70 billion by 2025; the numbers are almost irrelevant.

IoT devices are used in homes, transportation, communities, urban planning, environment, consumer packaged goods, services and soon in human bodies. A number of insurance companies use these devices to assess driver habits and usage. Autonomous cars and changing ownership and usage models are creating a generation of insurance products that can be facilitated through IoT-collected data. Home devices can detect leaks, theft and fire damage – capabilities that reduce risk. Shipping companies use the IoT for fuel and cargo management, which offers operating efficiencies, transparency and loss prevention.

Merging the mass of IoT data with the blockchain is not without challenges, but this combination can provide a completely new way of creating an insurance model that is far more efficient and faster, and where data flows directly from policyholders to the insurer.

Summary

Interest in the trinity of bitcoin, blockchain and distributed ledger technology has significant momentum. However, the technology is not magic or a panacea for every corporate woe. It has disadvantages and limitations, and there are situations where it would even be the wrong solution. There is enough about it, though, to merit continued closer investigation – the many emerging cases of its application bear testament to that – but in place of hype we still need answers.